Swedish Covenant makes good on pledge to repay workers for frozen wages

(Crain's) -- When management at Swedish Covenant Hospital froze salaries last year, it also struck a deal with its 2,200 employees: Help us turn a profit and we'll give your money back.

Now, executives are spending $1.5 million -- more than a third of the annual operating profit -- to make good on that pledge. Starting next week, the Northwest Side hospital's workers will receive a lump sum to repay salary foregone over the past recession-riddled year.

"Rather than cut staff, we decided it was a better option to give them ownership of the solution," says Swedish Covenant CEO Mark Newton. "We said: 'Here's how you can earn it back.' "

Restoring pay lost to a salary freeze or reduction is rare, compensation experts say.

Just 4% of employers who cut pay during the recession, and 2% of those that imposed salary freezes, said they would provide lump-sum payments to make their workers whole, according to a survey released in January by World at Work, an Arizona-based human-resources association.

"There were some really draconian steps taken by employers last year who were genuinely fearful that their business was on the line," says David Van De Voort, a Chicago-based partner at Mercer. "It's just a strategically smart thing to demonstrate to your workforce that you didn't like doing it, and you're changing it as soon as you can."

Swedish Covenant had been at "significant risk" of posting a loss for the year from a dip in patient volume due to the economy and roiling credit markets that threatened to push debt payments higher, Mr. Newton said.

While the salary freeze shored up expenses, Mr. Newton challenged staffers to help the hospital hit its goal of a $3-million operating profit through their own cost-cutting efforts and by enhancing revenue through better customer service.

Food service workers trimmed $15,000 by changing their milk vendor. The pharmacy saved $60,000 by more efficiently managing antibiotics. Nurses in the surgical recovery area saved nearly $25,000 by cutting back on overtime.

Employees even voted down an annual employee-recognition cruise on Lake Michigan to save cash.

"Everyone wanted to meet the challenge so they could get their money back," said Pat Zeller, nurse manager in the surgical-recovery unit.

The hospital ended up with a $3.9-million operating profit and will take $1.5 million of that to reimburse staff. Most workers will get a 1% to 3% raise in a lump-sum payment.

Mr. Newton also points to a 2% increase in patient volumes, which he attributes in part to a more-concerted effort to keep patients -- and the physicians who bring the hospital its business -- happy.

"We got to our goal through a series of incremental steps taken by 2,200 employees," he says.